Extended-stay supply beginning to outpace demand

(Marriott's Residence Inn Wailea )

According to The Highland Group’s 2016 U.S. Extended-Stay Lodging Report for the mid-year, supply increases at four times the rate of the overall U.S. hotel market have resulted in slight decreases in extended-stay hotel average occupancy through mid-year 2016 compared to the same period in 2015.

While the report also finds that demand remains strong, its current strong trajectory will likely be affected by supply before the end of this year and into 2017. Subsequently, supply growth is impacting increases in ADR and near-term ADR growth rates. Nevertheless, ADR is expected to continue to grow sufficiently enough to offset declining occupancies and result in revenue-per-available-room growth for the sector that is above inflation in 2016.

Impending Slowdown

“Extended-stay hotel companies know that new room construction is at an all-time high and therefore, they expect a slowdown to build up occupancy,” said Mark Skinner, a partner at The Highland Group.

The boom in extended-stay construction has certainly given the sector pause as it reconsiders its long-term outlook. Fewer openings are forecasted for 2018 and over the next four-and-a-half years, the average annual increase in supply is forecast to be just 4.9 percent, but growth in the first two years is expected to be far stronger than in the last two.

But that doesn’t mean the extended-stay market will come to a standstill. Sonesta ES Suites, which only came to the market in 2012, has created its existing portfolio of 27 hotels nationwide “not by adding more supply to the market, but by acquiring and repurposing existing supply,” explained Mike Wohl, VP of operations. “As the segment becomes more popular, we see consumers using the hotels in a different way and because our hotels are in more suburban markets, we see families staying at the hotels–especially in two-bedroom suites—as a weekend getaway from the city.”

To adapt suites to the varying needs of its diverse guest demographic, Sonesta ES Suites completely redesigns every property to its brand package specifications following acquisition. Desks are entirely removed from rooms to make way for new king-sized beds while worktables are placed in common areas. “If we kept the desks, our family and leisure travelers have no use for them, but they don’t have to use the worktable for work. They can use it for family meals or to play board games. But there are also convenient outlets and lighting for business travelers who do want to use it work,” Wohl said.

Extended Stay America, which has not built a new hotel in 10 years, is taking a similar approach to keeping its brand fresh. At an Investors Day conference in New York last spring, the company unveiled plans for more modernized suites and more interactive lobby spaces that COO Tom Bardenett explained as a response to a growing demand from guests who wanted more optimized space, as well as the opportunity to engage with other guests during their stay. “Twenty years ago, these buildings had very little lobby space, but common spaces are being reimagined so that when guests do laundry or exercise or watch TV outside of their room, they can interact with other guests and enjoy themselves [outside of the room] in our new open space hub called StayPlay,” he said.

Taking the Leisure Market by Storm

Other brands are looking for additional means to innovate their product and keep customers engaged. Marriott International is taking its Residence Inn brand to more leisure destinations and just opened its first Hawaii property in September, following openings in South Florida, Anaheim, Calif., and Brazil, earlier in the year. An oceanfront Residence Inn is also slated to open in Costa Rica in 2017. “Residence Inn works well in leisure destinations,” said Diane Mayer, Residence Inn VP and global brand manager. “We’re able to appeal to all guest segments and provide guests with a value that many other brands don’t all at a mid-tier price point.”

Likewise, Hilton is forging ahead with its strategy to take its all-suite brands beyond suburbia and into urban markets with dual-branded properties, such as the Hampton and Homewood Suites Washington D.C. NoMa Union Station, which opened in August with shared facilities such as large communal areas, a fitness center and an indoor pool. “This strategy is especially lucrative in urban destinations, where real estate is at a premium,” noted Bill Duncan, global head of all suites for Hilton Worldwide. “The urban evolution has required our All Suites product to be flexible in order to meet travelers’ desires to stay in urban and downtown destinations. Owners and developers benefit from the flexibility, competitive advantage and operational efficiencies that this model delivers, offering them a high value proposition for their investments.”

TownePlace Suites by Marriott is enhancing existing properties by partnering with various retail industry brands in order to enhance the guest experience. This summer, the hotels announced a partnership with grill manufacturer Weber that includes the roll-out the brand’s stainless steel Summit Gas Grills at more than 100 TownePlace Suites across the U.S. and Canada. Loren Nalewanski, VP of global brand management for TownePlace Suites pointed out: “It’s important to continue to always add more value to the customer experience and a great, well-known brand name exposes guests to things they might not have at home. It also forms a more residential type of experience, critical in the extended-stay segment.”